Ian Bell's opinions are his own and do not necessarily reflect the opinions of Ian Bell

The Open Debate on Chinese Internet Proliferation

Statistics lauding the growth of the Internet in China have become so commonplace as to inspire yawns, despite breathless press reports of hundreds of millions of Chinese going online and signing up for the ‘net.Â With the Chinese Government declaring that their internet population surpassed the US last year, it would seem that the real opportunity for expansion and growth online is not in the West, but somewhere behind the Great Firewall of China. Cue the ads for Chinese Web Hosting, Chinese Industry Liaisons, and the omnipresent legions of Chinese “business agents”.

Many Western technology companies have heeded that call, but have found themselves cast into the rocks on Chinese shores — including companies like Microsoft, Google, Cisco, eBay, and YahoO!Â The massive markets just never seem to have materialized in the Orient for these giants, or when success has loomed on the horizon the murky Chinese bureaucracy has stepped in to snatch defeat from the jaws of victory.Â Partnerships have vapourized overnight, and (particularly in the case of Cisco) core Intellectual Property has been outright stolen, reverse-engineered, or redistributed.Â Perilous waters, indeed.

So it was with this skepticism that my friend Gersham viewed the latest piece of propaganda emerging from our friends in China that we have now reached the new height of 338 million Chinese Internet users — a 13 percent increase since the end of 2008, and just about exactly one quarter of the country’s population.Â All of this, of course, seems to have been tabulated and distributed by the slightly inaccurately-acronymed Chinese Internet Network Information Centre (CNNIC) which, by its own admission “takes orders from the Ministry of Information Industry (MII) to conduct daily business.”Â In fact, Google “Chinese Internet Traffic” and you’d be hard-pressed to find data that did NOT originate from the CNNIC.Â Hmm.Â Call me a cynic.

It is likely difficult for most (any) of us to corroborate or even conceptualize these high numbers, but it seems suspicious nonetheless — particularly from a country whose median income is around $3400 and whose Per-Capita GDP is ranked 104th, right behind Armenia.Â In trying to substantiate this, once can point to Alexa’s site rankings which currently reveal that 3 Chinese-language web sites rank in the Top 20:Â Search Engine Baidu (#9), IM chat and portal QQ (#14), and portal Sina.com.cn (#18).Â Sounds good, right?Â But look closely at the rankings.Â Baidu, an undisputed leader in Search for China, reaches 5.73% of the internet populace, whereas Google.DE (#13) reaches roughly 3% of global internet users while servicing German, Swiss and Austrian users exclusively.Â Combine the populations of these three countries and they don’t even add up to 100 million people.

Gersham pointed me toward the Firefox Download Stats, where as of this writing Germans have made 4,948,666 downloads of various firefox versions compared to only 672,972 for China.Â Again, Germany has a population of 82Million vs. 1.3Billion in China.Â As a control, Americans have downloaded Firefox 7,959,727 times as of this writing.Â Do the Chinese really just prefer Internet Explorer?

In January 2009, Comscore measured the Chinese internet audience at closer to 180 Million users, still an impressive 18% of the Internet population. Â This site quotes murky Nielsen Online data pegging Chinese Internet Users at roughly 300 Million.Â Beyond these heresy reports, empirical measurements are difficult to come by.

So, let’s throw up our hands and try to reverse-engineer the data using published stats.Â According to June 2009 data from Comscore, Google has captured 65% or so of US Search Traffic.Â This made it the #1 web site in the world, with 157 Million US Visitors in June, according to Comscore.Â In the Chinese Market, Baidu has captured 73% of Chinese search, with Google in the Number Two spot.Â Yet Baidu.com barely moves the needle by comparison, according to compete.com, alexa.com, and others.. hitting roughly 600,000 unique visitors per month globally.Â Â High-side estimates of the Internet’s penetration in the US peg it at 72.5% of the populace, or about 220 million.Â This makes the data on Google’s penetration vs the addressable market reasonably accurate (71% if you do the math).Â Following this logic, if Baidu in fact has 73% of China’s purported 338 Million users, it should be ranking as the #1 web site by far, with >246 Million unique visitors per month.Â In fact if any of this data were true, then Chinese sites should occupy at least 4 of the Top Ten global web sites.

Whatever your opinion of Compete’s and Alexa’s relative methodologies, it’s impossible to reconcile anything even close to the numbers coming from the Chinese Government.Â If that isn’t good enough for you, let’s turn to profits.Â While serving what was allegedly the world’s largest internet audience, Baidu appears to be tracking to earn about $500 Million in revenue this year.Â Google’s revenue appears to be tracking to about $23 Billion for 2009 with its pithy 157 Million unique visitors.Â Any way you slice it, if China’s internet userbase is as large as Beijing says it is, and if Baidu’s market share of that audience is what it’s widely purported to be, then both the number of uniques reported by external traffic sites and the revenues reported by the public company that owns Baidu should be exponentially greater.

These stats seem to either indicate that Chinese do not use search very often, or that there just aren’t too many of them heading out into the wilds of the Internet.Â Either way, statistics emanating exclusively from bureaucratic sources within Beijing, particularly those which seem to fly in the face of all other external metrics, are not to be believed.Â The thesis of this post is not to suggest that China is NOT a massive opportunity for online properties and other technology purveyors, it is simply an attempt to point out that, like in a lot of cases in dealing with the Peoples’ Republic of China, things are not what they may seem.Â Pay no attention to the man behind the curtain.

17 thoughts on “The Open Debate on Chinese Internet Proliferation”

Oh, and also: China has a natural protectionist response when it comes to foreign companies. The Chinese unabashedly promote domestic markets over foreign ones, whereas “Buy American” policies are drowned out by angry cries about protectionism, often in the US itself.

China has always favored their corporations over others, and I don’t really blame them for it. It is widely known that after the Opium wars, the Chinese credit themselves with rejecting foreign goods and buying domestic in order to rebuild the economy. Today is no different. China will come out with services and companies to match any competitor. Some examples:

Baidu instead of Google
Tudou/Youku instead of Youtube
Taobao instead of Ebay
Hudong instead of Wikipedia
Fanfou instead of Twitter
and much more, not to mention shanzai merchandise

A very big chunk of China’s internet users are from Net Cafes. Whether this fits the definition of “internet user” is debatable. They do spend a pretty long time in there, and there are quite a lot of cafes. Either case, China’s netizen count is bound to rise eventually.

Thanks Daesong; I think you make my point very well … however you choose to label them, casual internet users in internet cafes are a far different market from broadband users with always-on internet connections in the home.

Sorry to be a wet blanket, here, but as Kaiser points out most of your evidence (not to mention your resulting conclusions) are way, way off the mark.

If anything, CNNIC has UNDERESTIMATED Internet usage numbers for many years. The majority of Internet users in China browse the ‘net on shared computers, either in cafes or at home — just as most homes in the USA shared a single PC among 3-4 family members before the mid-90’s “beige box boom,” Chinese households rarely have more than a single PC.

As Kaiser also points out, statistics from almost any entertainment-based web site in China will more-or-less back up CNNICs estimates. Unlike the West, China’s Internet users care little about the ‘functional’ aspects of the Internet (online banking, searching for information, buying stuff), but embrace the the ‘net as a social and entertainment outlet with astonishing gusto.

Baidu and Google are therefore not valid proxies for Internet usage (either in population or revenue). In short, China’s Internet users have a conception of the web that is diametrically opposed to that of the casual, occasional observer in the West. You need to look at QQ vs.’Western IM”, or MMO server stats, or even mp3 downloads to get anywhere close to a comparison. And again, the results would be apples/oranges. Don’t forget, China’s Internet is more like an “intranet,” isolated by barriers of technology, utility, language and most importantly interest. Google has done poorly in China because it didn’t answer a pressing need in the market, whereas BIDU did.

For another example, due to the difficulty of entering Chinese text using Pinyin (which is phonetically based on Mandarin pronunciation) among speakers of different dialects — especially Cantonese — “quick link” sites like hao123 have cropped up to give confused Interner nubies an easier way to “search” for information. As a result, hao123 sends a surprisingly large percentage of overall traffic to Baidu.

And don’t even get me started on using Firefox downloads to arrive at an Internet population in China. Crazy. After years of pirated MSFT products, China is solidly IE territory, and most websites are non-standard and will not even work using FF. The fact that FF exists at all in China is a testament to China’s scrappy population of geeks who are willing to run multiple browsers constantly.

While I agree that CNNIC numbers are suspect, and (having spent much of the last decade covering the Internet in China) would be the last person to come to the aid of the government-backed propaganda machine, your approach to the task of ‘debuking’ CNNICs assertions is totally backward.

For a better analysis, I would point your readers to… almost anyone else’s publications on these matters over the past few years.

The purpose of this post was to pull the thread loose on more believable emergent data on the Chinese internet story. Still waiting! What we have gotten, however, are some pretty plausible reasons why the data is murky and might not be objectively measurable, which is a shame.

The thesis that remains is that China is not an Internet powerhouse. If Chinese users are surfing Chinese sites in the Chinese language from Internet Cafes using computers they do not own or control, then they might technically be using TCP/IP and a web browser, but I would argue they are not on the Internet.

(1) Internet cafe users are many: there are an estimated 100,000+ Internet cafes (maybe 150K, I saw different figures) in China. Some cafes have just a dozen machines, some have hundreds. Each machine services many users.

(2) Chinese users definitely visit mostly Chinese websites and Alexa has not AFAIK strong adoption in China. As a more general view, “measurement” is not a liberalized industry in China. It is an opinion that measuring what is said or not can help reverse engineer PR policies.

(3) Right, if China-based users use proxy servers to access foreign sites, they won’t appear in the stats as Chinese. However, most Chinese users browse the Chinese web in Chinese, just like Japanese and Koreans (and probably most non-English speaking countries) browse mostly in their native language. Proxy servers are popular with China-based foreigners – I wonder if this population, though small, would not be larger than the Chinese proxy users…

On firefox, it won’t gain as much momentum in China as IE simply because many Chinese websites simply don’t work on Firefox. I use Firefox with IE Tab, and I cannot access my China Construction Bank account without switching over on IE Tab. The security scripts on their online banking site simply do not work with Firefox. Same goes for AliPay. Firefox can’t read the plugin AliPay wants you to install, but IE picks it up easily.

As long as local companies solely build to IE, it’ll be useless for the Chinese to download Firefox. They won’t be able to get anything done.

If I may, I’d like to point out a couple of problems with your assessment of the CNNIC numbers. While it’s definitely laudable to maintain skepticism of statistics you get out of any agency (Chinese or otherwise, government-run or otherwise), broadly speaking, CNNIC’s recent reporting jives very well with my experience here working closely in the Internet for a decade.

Alexa does measure Chinese traffic, but it has no reach onto Internet cafes (nor do Compete, which has basically no Chinese presence, or comScore). Roughly a third of Chinese Internet users access the Web primarily through Internet cafes, which are ubiquitous even in small towns and incredibly inexpensive to use: usually, hourly rates run from about US$0.28 to US$0.44.

On the subject of access cost, your per capita GDP figure doesn’t take into account the fact that broadband is very inexpensive in China: All-you-can-eat 1 meg runs $20 or less per month even in metropolitan areas, and it’s cheaper still in lower-tier cities and rural areas. 2 meg ADSL is about $26 in Beijing. Add to this the fact that if you look at median income in the areas where Chinese Internet penetration is highest — you have a sort of 80/20 effect here, where say 80% of users are in 20% of cities — you’d find they’re significantly higher. Remember, China’s Gini Coefficient is among the highest in the world: There’s huge income inequality favoring the coastal provinces and first-tier cities. It’s almost unheard of for anyone under 40 in a major city not to be an Internet user (if not a complete addict!)

Firefox is, sadly, a distant third in browser popularity in China behind IE (which has a lamentable iron grip here and market share of 83% or more), and a homegrown browser called Maxthon (market share in the range of 12-15%, I understand). Firefox does appear to be gaining popularity here, but the proportion is very low, and limited chiefly to tech savvy types. Also note that many PCs in China are DIY jobs bought from local assemblers who pre-install a standard software pack that, in recent years, often includes FF — another reason that download stats aren’t an accurate reflection.

For more solid numbers, look at user numbers of China’s most popular instant messaging service, Tencent’s QQ. This Hong Kong-listed company’s Q1 earnings report counts 934.1 million (yes, you read that right) total accounts, with 410.8 million active users. Many QQ users have multiple accounts, but still, penetration of QQ use among Chinese Internet users is about 70% and supports, or at least does not contradict, the CNNIC claim of 338 million total Internet users. Peak simultaneous users of QQ reached 57.5 million in the first quarter of this year.

From where I sit, the most solid evidence I see that the CNNIC number isn’t terribly far off is this: The company I consult for, China’s largest Internet video site Youku.com, reports about 150 million monthly unique visits, and as much as I’d like to believe that this represents an even higher percentage of China’s total Internet users, I think that what, 40% or so of the total reported is still pretty high.

RK’s suggestion that proxies and VPN account for “lost” numbers is probably not accurate. A very small percentage of Internet users make use of proxies or VPNs, chiefly because a very small percentage of Chinese Internet users visit sites hosted outside of the US which are apt to be blocked.

Indeed, for years and years, it was widely believed by the most seasoned and well-respected Internet and telecoms consultants in China (Duncan Clark of BDA, for instance) that CNNIC routinely undercounted the number of Internet users.

(1) regarding the # of internet users in China, it is possible that many of those use internet cafes. If this is true, then this would explain the relative small download numbers accrued to China users.

(2) I do not know if Alexa measures Chinese websites. Is it possible that Chinese users tend to visit mostly Chinese websites and these sites are not measured by Alexa?

(3) It is also possible that many Chinese users get around the Chinese firewalls using proxy servers. These servers would obscure Chinese users usage of foreign websites. Other than anecdotal stories, I have no statistics to back this up. The popular proxy services would have some data concerning access by Chinese users.
RK